Is the “Retail Apocalypse” Overdone?

What’s really happening with shopping?

Take the just completed holiday season. According to the National Retail Federation,

  • Total holiday-related sales reached $730.2 billion in the US, up 4.1% from 2018.
  • US online sales reached $167.8 billion, up 14.8% from 2018.

So, nobody is shopping in stores? Really?

By these numbers, 77% of sales remain store-based. And that doesn’t count the items sold online and picked up at a store location.

A variety of companies, notably TJX and Barnes & Noble, have shown that they know how to make stores work.

My theory is that the retail apocalypse story is a cover story to conceal poor management and strategy. Part of inadequate strategy is the failure to adapt to social change.

There are several key trends affecting how people shop:

  • Decline of the middle class. Credit cards have to be paid, and there’s only so far deficit spending can go. Adjusted for inflation income is flat. When you take out the 1%ers and adjust for inflation, most people were better 20 years ago than they are now in terms of disposable income (money not needed for necessities). Add student loans and healthcare debt, and the situation is worse. People in the US just can’t afford what they used to be able to buy.
  • The impact of aging. Instead of making it easier for people to go where they want, we make it easier to not go and have stuff delivered. Unfortunately, inertia adds to obesity and health care costs.
  • Let’s make shopping horrible again. Once upon a time, shopping was an experience, not just a mission. Stores provided food and entertainment. Some are still doing that, and those stores are doing rather well. The stores that have gone in the direction of cattle cars aren’t. There’s only so far discounting will go to offset a painful experience.

The impact of these trends appears to be very specific to the US.

  • High-end audio store Bose announced the closing of all stores in the US. However, they are not closing stores in Korea or China.
  • Internet shopping is worldwide, but the major stores and retail conglomerates in Europe are quite alive. The US jeweler, Tiffany and Co., was just sold to French-based LVMH Moët Hennessy Louis Vuitton. French retailers are buying; US retailers are selling. What does that say?
  • While there is retail stress in London, it’s not at the same level as in the US, and analysts are more likely to credit nervousness around Brexit than the internet for lower sales.

In particular, in the most recently completed fiscal year, UK retail giant Selfridges set a sales record, but incurred lower profits due to investing in making shopping fun for consumers.

It’s time to dispense with the excuses and call uninspired management for what it is.

Sources:

  1. https://www.cnbc.com/2020/01/16/the-national-retail-federation-nrf-releases-2019-holiday-sales.html
  2. https://www.barrons.com/articles/tiffany-sale-could-help-restore-jewelry-brands-former-glory-01574729619
  3. https://www.ft.com/stream/0ba6dd25-532a-48dd-9ae6-0a004bc3c505
  4. https://hypebeast.com/2019/10/selfridges-year-end-financial-results-info

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